Question

Amherst City provides a defined benefit pension plan for employees of the city electric utility, an enterprise fund. Assume that the projected level of earnings on plan investments is $190,000, the service cost component is $250,000, and interest on the pension liability is $160,000 for the year. Actual returns on plan assets for the year were $175,000, and the City is amortizing a deferred outflow resulting from a change in plan assumptions from a prior year in the amount of $6,000 per year.

Prepare journal entries to record annual pension expense for the enterprise fund.

Answer 1

By applying the compound interest formula to the investments of Alexx and Spenser, we can calculate the different future values after 30 years considering their respective interest rates, and then compare the results to find the difference.

Step-by-step explanation:

Comparison of Investment Gains Over 30 Years

To compare the future value of investments for Alexx and Spenser, we use the formula for compound interest: Future value = Principal * (1 + Interest rate)number of years t. Alexx invests directly, resulting in an interest rate of 5% per year, whereas Spenser's investment through a retirement fund yields a 4.75% return after accounting for the 0.25% administrative fee.

To calculate Alexx’s future value: $5,000 * (1 + 0.05)30.
To calculate Spenser’s future value: $5,000 * (1 + 0.0475)30.

After performing these calculations, we subtract Spenser's future value from Alexx's to determine how much more Alexx will have than Spenser after 30 years.